Microeconomic Challenges Economics Unit 2 Review

Capital One of the factors of production that can be defined as the equipment and factories needed to produce goods

Results in an increase in the quantity demanded of that product Decrease in Price Results in an increase in the quantity demanded of that product

Will usually cause producers to supply more and consumers to buy less A High Price Will usually cause producers to supply more and consumers to buy less

Scarcity Influences the price of a product by causing inflation

Refers to the overall decrease in the price of goods and services Deflation Refers to the overall decrease in the price of goods and services

Refers to the overall increase in the price of goods and services Inflation Refers to the overall increase in the price of goods and services

The point at which supply and demand intersect on the graph Equilibrium The point at which supply and demand intersect on the graph

Market Economy Prices are established by the interaction of supply and demand

Substitute Products Competitive products which satisfy the same need as another, thus a decrease in the price for one will usually result in a decrease in demand for the other. (ex. Coca-Cola and Pepsi)

Complementary Products Products which are used together. Hot Dogs and Hot Dog Buns are examples.

Law of Demand When the price of a good rises, the amount demanded of that good falls and when the price of a good declines the amount demanded of that good increases

Demand Measured by the consumer desire for a product as well as the willingness and ability to buy the product

Determinants of Demand Income Consumer Expectations Population Consumer Tastes Complements and Substitutes

Increased Income Demand determinant which usually increases demand in the marketplace. This means that the demand curve will shift to the right.

The quantity of a good supplied rises as the price rises Law of Supply The quantity of a good supplied rises as the price rises

The quantity which producers are willing to produce Supply The quantity which producers are willing to produce

Determinants of Supply Changes in the cost of resources used to make the good Change in the price of other goods these resources could make Change in technology used to make the good Change in producers’ price expectations Change in number of sellers in the market

Shortage Results when the price of a product falls below the equilibrium price since demand will exceed supply (based on the laws of supply and demand) The quantity which results when demand exceeds or is in excess of supply at a given market price

Surplus the excess quantity which results when supply exceeds demand at a given price

When a modest price increase or decrease has a large effect on demand Elastic Demand When a modest price increase or decrease has a large effect on demand

Inelastic Demand When a modest price increase or decrease has little or no effect on demand

Production Possibilities Curve Shows the different quantities that a small company would produce with their limited resources. Points along the curve represent the opportunity cost

Subsidy A government payment to producers which will reduce production costs. Because of this producers would be willing to produce more items. This will cause a the supply curve to shift to the right.

Consumers are told that the consumption of cauliflower will significantly reduce the risk of cancer. Which scenario is likely to happen in the cauliflower market?

In the graph, what happened to the equilibrium price when the supply curve moved from S1 to S2?

In the graph, what might explain the movement of the demand curve from D1 to D3?